Markets mixed as trade concerns linger, Tullow throttled

Heading into the close, European equity markets are mixed as there has been an absence of major macroeconomic news.

Europe

The US-China trade spat is on dealers’ minds, but there has been no major developments on that front. The next few days will be critical for the situation as the US still have plans to impose tariffs on more than $150 billion worth of Chinese imports. The decision might get pushed back into 2020 as it is in Mr Trump’s interest to keep the argument going – it plays to his support base.

Tullow Oil shares have tanked as the group delivered a dismal update this morning. There was no luck for the Irish oil exploration company as the stock slumped to an all-time low following the reduced guidance, the scrapping of the dividend, and the immediate departure of the two executives. The firm reiterated that it will achieve its full-year production target of 87,000 bpd, but it expected next year’s production to be between 70,000-80,000 bpd, and for the following three years, output is tipped to be roughly 70,000 bpd. The African-focused oil company confirmed it will focus on paying down debt, hence why the dividend was stopped. It’s never a good look when the dividend is halted, and especially when a company says the process of paying down debt will be slower than expected. In light of the guidance, it would seem that Tullow has a few tough years ahead.

Tesco shares are in demand after the supermarket group said it is carrying out a strategic review of its operations in Asia, which the market has taken as a sign it might spin-off the operations in Malaysia and Thailand. It is believed the Asian business could be worth up to $9 billion. Tesco, like its competitors has undergone a restructuring scheme in recent years – in a bid to become more nimble. The business in question accounts for 8% of group revenue and 10% of group profit, but the freed-up capital could help the company focus on its core business. Trading in the UK market is tough thanks to Lidl and Aldi, so Tesco need to be fighting fit at home just to hold their ground.

US

The major indices are mixed as the euphoria from Friday’s stellar jobs report has largely subsided. The common theme today is low volatility and small trading ranges. From the non-farm payrolls report, it is fair to say the US economy is in good shape, but the uncertainty surrounding trade is hanging over equities.

ArQule shares have more than doubled as it has agreed to be taken over by Merck for $20 per share. It is worth noting ArQule’s share price closed at $9.66 on Friday. Merck are clearly content to pay a big premium in order to ramp up their oncology division as they will acquire ARQ 531 – an experimental cancer treatment. Merck’s share price is a little lower so traders don’t think the group paid too high a price for ArQule.

Macy’s shares are slightly lower following a downgrade to ‘sell’ from ‘neutral’ by Goldman Sachs. The Wall Street titan warns there are still ‘significant additional downside’ to the business.

Citigroup cut its outlook for 3M to neutral from buy, which sent the stock lower. The bank feels the company could be open to legal action in relation to the PFAS scandal.

FX

GBP/USD has hit a fresh seven month high as opinion polls continue to put the Conservative party in the lead for this weeks’ general election. The Tories are pro-business and that is one reason why traders are buying up sterling. Seeing as all Conservative candidates have pledged to support Boris Johnson’s Brexit deal, there is a feeling the situation could be wrapped up neatly early next year.

USD/CAD is in the red as the Canadian dollar has recouped some of the ground it lost on Friday – when the US jobs report was strong and the Canadian employment reading was weak. Today, Canada, revealed mixed housing data. The housing starts for last month were 210,300, which undershot the 205,000 forecast, while the building permits update showed a drop of 1.5%, and economists were expecting growth of 2.9%.

Commodities

Gold has pulled back some of the ground it lost on Friday as traders seek out bargains. The slight risk-off attitude of dealers has helped the metal too. This week will be crucial for US-China trade relations, and should tensions ratchet up again, the metal is likely to be in demand.

WTI and Brent crude are a little lower today in the wake of the Chinese trade data. The unexpected fall in exports of 1.1%, sent out a message the trade spat between the US and China is hurting the global economy. The energy market hit its highest level since September on Friday on account of the OPEC+ decision to cut production by 500,000 bpd until March, so today we are seeing a little profit taking.

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